CEF.UP – ECO Seminar/Webinar

Friday – February 24^th, 2023, at 1:00 p.m. | Room 305| Online

“The Spatial Dimension of Import Competition”

Joakim Gullstrand – Lund University (joint work with Polina Knutsson)

Abstract:

“Exposure to international competition on a country level has been shown to improve the efficiency of domestic producers. We contribute to this literature by studying whether the distance between producers and importers within a country matters for import competition effects at the product level. Using highly detailed geographical information about the location of Swedish manufacturing firms over 2005–2014, we find robust evidence of an increased efficiency in the domestic production when imports rise, but that the effect declines with the distance between the producer and the importer. In addition to the importance of the geographical pattern within a country, we find that the average effect of import competition conceals large variations across firms and products. Highly productive firms respond to import competition by further improving efficiency, which, in turn, translates into both a lower price and a higher markup. Firms are also more likely to drop fringe products while keeping core ones. Products undercut by low import prices within their close proximity respond by lowering prices only, although highly efficient products resist this by a more pronounced improvement in the marginal cost, which, in turn, translates into both a lower price and a higher markup.”